Revenues increased 6.7% year over year to $74.9 million compared with $70.2 million in the prior year, enhanced by a 4.1% increase in our core DCM business

Adjusted EBITDA of $5.2 million, compared to $3.3 million in the prior year (See Table 2 and “Non-IFRS Measures” below)

Net Income of $0.8 million, including one-time business reorganization costs of $0.2 million compared to Net Loss of $1.1 million, including restructuring expenses of $1.4 million in the prior comparative period

Adjusted net income of $1.0 million, compared to break even in the prior comparative period (See Table 3 and “Non-IFRS Measures” below)

YEAR TO DATE

Revenues increased 13.2% year over year to $241.6 million compared with $213.4 million in the prior year, bolstered by an 8.8% increase in our core DCM business

Adjusted EBITDA of $15.7 million, an increase of 49.9% year over year (See Table 2 and “Non-IFRS Measures” below)

Net Income of $1.4 million, including restructuring expenses of $0.8 million, acquisition costs of $0.3 million and one-time business reorganization costs of $1.3 million compared to Net Loss of $3.7 million, including restructuring expenses of $5.0 million and acquisition costs of $1.0 million in the prior comparative period

Adjusted Net Income of $3.3 million, compared to $0.9 million in the prior comparative period (See Table 3 and “Non-IFRS Measures” below)

Secures a new Heidelberg six-colour press with enhanced capabilities to grow commercial print business

Announces the closure of its corporate engineering group with expected cost savings of $1.5 million per annum

Further advances its implementation of the new ERP which is expected to go-live in the first quarter of 2019

Reconfirms financial outlook for fiscal 2018

DATA Communications Management Corp. (TSX: DCM) (“DCM” or the “Company”), a leading provider of marketing and business communication solutions to companies across North America, announced its consolidated financial results for the three and nine months ended September 30, 2018.

“We continued to experience higher revenues over the prior year as a result of continued growth and wallet share gains in our core business from our existing clients and successful wins from first time clients, combined with incremental revenue from acquisitions made in 2017 and the first half of 2018. Although there was a slight improvement in our gross margin over the prior year, we continue to experience downward pressure from paper and other raw material cost increases. We are working closely with our customers and suppliers to manage pricing and input costs for the forthcoming year,” said Gregory J. Cochrane, President & CEO.

“During the third quarter we were also focused on standing up our cannabis clients and preparing them for market. To date, more than 10 of the leading licensed cannabis producers are relying on DCM to deliver their packaging labels. October 17th, 2018 was truly a historic date for this emerging market and DCM was and is proud to be involved in our clients’ success. While cannabis packaging label revenue was minimal in the third quarter, we expect the full realization of our efforts starting in the fourth quarter of 2018,” he continued.

“We have advanced our ERP project implementation and testing. While we were highly confident we could execute on the initiative in the fourth quarter, I decided to defer the launch until the first quarter of 2019 to ensure we keep our focus on executing a busy fourth quarter of revenue for our clients,” Mr. Cochrane concluded.

PERENNIAL JOINT VENTURE WITH APHRIA

On November 7, 2018, DCM announced that Perennial, a wholly owned subsidiary of DCM, and Aphria Inc. (“Aphria”), a leading global cannabis company, had entered into a joint venture agreement (the “JV”) devoted to creating original, consumer-driven brands and products for the adult-use cannabis market. The JV will leverage Aphria’s expertise as a leading global cannabis producer and Perennial’s experience with international brand development and strategy to introduce new, cannabis-infused products to the Canadian and legal international markets. The JV will look beyond just edibles and beverages to a range of products designed to meet consumer demand in the cannabis and wellness space. Perennial has a successful track record of creating go-to-market strategies for major CPG and retail clients throughout North America and around the world. The JV was created for the purpose of the development, production, marketing and sale of non-Aphria branded new products, brands and product categories on the domestic and international adult-use cannabis markets. The JV will initially focus on cannabis-infused products for the wellness, medical and adult-use markets.

The JV is owned equally by Perennial and Aphria. It will select specific projects to collaborate on and seek to leverage the respective capabilities of Perennial, DCM and Aphria. The JV agreement includes typical terms related to corporate governance, capital contributions, intellectual property, and other standard matters.

FUTURE OPERATIONAL IMPROVEMENTS

In addition to the previously announced arrival of the new Gallus/ Heidelberg digital label press which is currently in advanced stages of production testing, DCM also announces it has secured a new Heidelberg six-colour press, which will be installed in its Thistle operation in the first quarter of 2019. This new piece of equipment will provide DCM with enhanced capabilities, allowing it to migrate more of its sheet fed volumes from tier two suppliers, and will also help it improve operating efficiencies and gross margins.

RESTRUCTURING

Effective October 19, 2018, DCM closed its corporate engineering department in Drummondville, Québec, which was comprised of a staff of approximately 14 people. The group was primarily responsible for the service and maintenance of DCM’s traditional rotary offset and label presses, which have now been consolidated in two facilities in Drummondville and Brampton, Ontario, and led the significant consolidation of DCM’s facilities over the past several years. Internal maintenance departments in Drummondville and Brampton are expected to support DCM’s forms and label presses going forward, while DCM’s other equipment is typically serviced by original equipment manufacturers.

DCM expects to include restructuring costs related to the closing of this department of $0.6 million in the fourth quarter of 2018, primarily relating to severances for terminated employees. Total annual savings from reduced labour and related overhead costs from the elimination of this group are estimated at $1.5 million.

FINALIZATION OF PURCHASE PRICE FOR PERENNIAL ACQUISTION

On October 17, 2018, the vendors of Perennial and DCM finalized the purchase price related to the Perennial acquisition resulting in a $59.0 thousand post-close working capital adjustment which will be paid in cash by DCM to the vendors of Perennial Inc. in the fourth quarter of 2018.

RESULTS OF OPERATIONS

All financial information in this press release is presented in Canadian dollars and in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

Table 1 The following table sets out selected historical consolidated financial information for the periods noted.

For the periods ended September 30, 2018 and 2017

July 1 to Sept. 30, 2018

July 1 to Sept. 30, 2017

Jan. 1 to Sept. 30, 2018

Jan. 1 to Sept. 30, 2017

(in thousands of Canadian dollars, except share and per share amounts, unaudited)

$

$

$

$

Revenues (1)

74,925

70,212

241,617

213,404

Cost of revenues

56,664

53,539

183,292

162,367

Gross profit

18,261

16,673

58,325

51,037

Selling, general and administrative expenses

15,547

15,369

50,969

46,108

Restructuring expenses

9

1,383

809

5,004

Acquisition costs

6

18

319

987

Income (loss) before finance costs and income taxes

2,699

(97

)

6,228

(1,062

)

Finance costs (income)

Interest expense

1,257

1,135

3,669

3,266

Interest income

(1

)

—

(5

)

—

Amortization of transaction costs

168

141

469

377

1,424

1,276

4,133

3,643

Income (loss) before income taxes

1,275

(1,373

)

2,095

(4,705

)

Income tax expense (recovery)

Current

430

165

985

504

Deferred

7

(470

)

(297

)

(1,463

)

437

(305

)

688

(959

)

Net income (loss) for the period

838

(1,068

)

1,407

(3,746

)

Basic earnings (loss) per share

0.04

(0.06

)

0.07

(0.25

)

Diluted earnings (loss) per share

0.04

(0.06

)

0.07

(0.25

)

Weighted average number of common shares outstanding, basic

21,523,515

19,325,409

20,821,844

15,184,358

Weighted average number of common shares outstanding, diluted

21,759,414

19,325,409

20,931,490

15,184,358

As at September 30, 2018 and December 31, 2017

As at Sept. 30, 2018

As at Dec. 31, 2017

(in thousands of Canadian dollars, unaudited)

$

$

Current assets

84,935

82,804

Current liabilities

62,949

68,648

Total assets

143,270

131,859

Total non-current liabilities

71,721

68,610

Shareholders’ equity (deficit)

8,600

(5,399

)

1.2018 revenues include the impact of the adoption of new accounting standard IFRS 15.Refer to note 3 of the unaudited consolidated interim financial statements for three and nine months ended September 30, 2018 for further details on the impact of the adoption of new accounting standards.

Table 2 The following table provides reconciliations of net (loss) income to EBITDA and of net (loss) income to Adjusted EBITDA for the periods noted. See “Non-IFRS Measures”.

EBITDA and Adjusted EBITDA Reconciliation

For the periods ended September 30, 2018 and 2017

July 1 to Sept. 30, 2018

July 1 to Sept. 30, 2017

Jan. 1 to Sept. 30, 2018

Jan. 1 to Sept. 30, 2017

(in thousands of Canadian dollars, unaudited)

$

$

$

$

Net income (loss) for the period

838

(1,068

)

1,407

(3,746

)

Interest expense

1,257

1,135

3,669

3,266

Interest income

(1

)

—

(5

)

—

Amortization of transaction costs

168

141

469

377

Current income tax expense

430

165

985

504

Deferred income tax expense (recovery)

7

(470

)

(297

)

(1,463

)

Depreciation of property, plant and equipment

1,162

1,084

3,486

3,027

Amortization of intangible assets

1,213

906

3,514

2,505

EBITDA

5,074

1,893

13,228

4,470

Restructuring expenses

9

1,383

809

5,004

One-time business reorganization costs

153

—

1,324

—

Acquisition costs

6

18

319

987

Adjusted EBITDA (1)

5,242

3,294

15,680

10,461

(1)2018 revenues include the impact of the adoption of new accounting standard IFRS 15.Refer to note 3 of the unaudited consolidated interim financial statements for three and nine months ended September 30, 2018 for further details on the impact of the adoption of new accounting standards.

Table 3 The following table provides reconciliations of net (loss) income to Adjusted net (loss) income and a presentation of Adjusted net (loss) income per share for the periods noted. See “Non-IFRS Measures”.

Adjusted Net (Loss) Income Reconciliation

For the periods ended September 30, 2018 and 2017

July 1 to Sept. 30, 2018

July 1 to Sept. 30, 2017

Jan. 1 to Sept. 30, 2018

Jan. 1 to Sept. 30, 2017

(in thousands of Canadian dollars, except share and per share amounts, unaudited)

$

$

$

$

Net income (loss) for the period

838

(1,068

)

1,407

(3,746

)

Restructuring expenses

9

1,383

809

5,004

One-time business reorganization costs

153

—

1,324

—

Acquisition costs

6

18

319

987

Tax effect of the above adjustments

(42

)

(361

)

(555

)

(1,306

)

Adjusted net (loss) income (1)

964

(28

)

3,304

939

Adjusted net (loss) income per share, basic

0.04

—

0.16

0.06

Adjusted net (loss) income per share, diluted

0.04

—

0.16

0.06

Weighted average number of common shares outstanding, basic

21,523,515

19,325,409

20,821,844

15,184,358

Weighted average number of common shares outstanding, diluted

21,759,414

19,325,409

20,931,490

15,380,159

Number of common shares outstanding, basic

21,523,515

19,334,735

21,523,515

19,334,735

Number of common shares outstanding, diluted

21,759,414

19,334,735

21,633,161

19,592,938

(1)2018 revenues include the impact of the adoption of new accounting standard IFRS 15.Refer to note 3 of the unaudited consolidated interim financial statements for three and nine months ended September 30, 2018 for further details on the impact of the adoption of new accounting standards.

Revenues

For the quarter ended September 30, 2018, DCM recorded revenues of $74.9 million, an increase of 6.7% or $4.7 million compared with the same period in 2017. Excluding the effects of adopting IFRS 15, for the quarter ended September 30, 2018, revenues were $3.1 million, or 4.5%, higher than the same period last year. The increase in revenues for the quarter ended September 30, 2018 was primarily due to additional revenues from the acquisitions of BOLDER Graphics and Perennial, new revenues contributed by a major Canadian Schedule I bank which DCM won late in the third quarter of 2017 and increased pricing for certain products. The increase in revenues was partially offset by the reduction in spend by certain customers, non-recurring work and the timing of orders.

For the nine months ended September 30, 2018, DCM recorded revenues of $241.6 million, an increase of 13.2% or $28.2 million compared with the same period in 2017. Excluding the effects of adopting IFRS 15, for the nine months ended September 30, 2018, revenues were $21.6 million, or 10.1%, higher than the same period last year. The increase in revenues for the nine months ended September 30, 2018 was primarily due to additional revenues from the acquisitions of Eclipse, Thistle, BOLDER Graphics and Perennial, new revenues contributed by a major Canadian Schedule I bank which DCM won late in the third quarter of 2017, increased volumes in labels work for existing and new retailer customers, increased pricing for certain products and a one-time increase in volume from a long-standing customer which generated $8.9 million in higher revenues relative to the same period last year. The increase in revenues was partially offset by the reduction in spend by certain customers, particularly in the financial institutions sector due to a technological shift in the way they conduct business, non-recurring work and the timing of orders. Overall, DCM continues to benefit from the growth initiatives it effected throughout 2017 and the first nine months of 2018 to help offset some of the secular declines experienced by the industry.

Cost of Revenues and Gross Profit

For the quarter ended September 30, 2018, cost of revenues increased to $56.7 million from $53.5 million for the same period in 2017, resulting in a $3.1 million or 5.8% increase over the same period last year. Excluding the effects of the adjustments upon adoption of IFRS 15, cost of revenues increased by $2.0 million or 3.7% relative to the same period last year. For the nine months ended September 30, 2018, cost of revenues increased to $183.3 million from $162.4 million for the same period in 2017, resulting in a $20.9 million or 12.9% increase over the same period last year. Excluding the effects of the adjustments upon adoption of IFRS 15, cost of revenues increased by $15.5 million or 9.5% relative to the same period last year.

Gross profit for the quarter ended September 30, 2018 was $18.3 million, which represented an increase of $1.6 million or 9.5% from $16.7 million for the same period in 2017. Excluding the effects of adopting IFRS 15, gross profit increased by $1.1 million or 6.8% relative to the same period last year. Gross profit as a percentage of revenues increased to 24.4% for the quarter ended September 30, 2018 compared to 23.7% for the same period in 2017 however, excluding the effects of adopting IFRS 15, gross profit as a percentage of revenues was 24.3% for the quarter ended September 30, 2018. The increase in gross profit as a percentage of revenues for the quarter ended September 30, 2018 was primarily due to higher revenues, increased pricing for certain products and favourable product mix, with lower levels of lower margin thermal products production than the comparable period replaced with higher margin products. Gross profit was also negatively impacted by increases in the cost of paper and the timing of passing through increases to customers, particularly certain recently contracted customers. Gross profit as a percentage of revenues was, however, positively impacted due to the refinement of DCM’s pricing discipline and cost reductions realized from ongoing cost savings initiatives.

Gross profit for the nine months ended September 30, 2018 was $58.3 million, which represented an increase of $7.3 million or 14.3% from $51.0 million for the same period in 2017. Excluding the effects of adopting IFRS 15, gross profit increased by $6.1 million or 12.0% relative to the same period last year. Gross profit as a percentage of revenues increased to 24.1% for the nine months ended September 30, 2018 compared to 23.9% for the same period in 2017, however, excluding the effects of adopting IFRS 15, gross profit as a percentage of revenues was24.3% for the nine months ended September 30, 2018. The increase in gross profit as a percentage of revenues for the nine months ended September 30, 2018 was positively impacted by higher gross margins attributed to Eclipse, Thistle, BOLDER Graphics and Perennial, and due to the refinement of DCM’s pricing discipline and cost reductions realized from prior cost savings initiatives. The increase in gross profit as a percentage of revenues was, however, partially offset by changes in product mix, the impact of paper and other raw materials price increases and compressed margins on contracts with certain existing customers.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses for the quarter ended September 30, 2018 increased $0.1 million or 1.2% to $15.5 million compared to $15.4 million in the same period in 2017. Excluding the effects of adopting IFRS 9 and 15, SG&A expenses were $0.2 million higher for the quarter ended September 30, 2018 when compared to the same period last year. As a percentage of revenues, these costs were 20.8% (or 21.2% before the affects of adopting IFRS 9 and 15) and 21.9% of revenues for the quarter ended September 30, 2018 and 2017, respectively. The increase in SG&A expenses for the quarter ended September 30, 2018 was primarily attributable to the acquisitions of BOLDER Graphics and Perennial and was partially offset by the benefits from the cost savings initiatives implemented in early 2018 and in 2017.

SG&A expenses for the nine months ended September 30, 2018 increased $4.9 million or 10.5% to $51.0 million compared to $46.1 million for the same period of 2017. Excluding the effects of adopting IFRS 9 and 15, SG&A expenses were $4.7 million higher for the nine months ended September 30, 2018 when compared to the same period last year. As a percentage of revenues, these costs were 21.1% (or 21.6% before the effects of adopting IFRS 9 and 15) and 21.6% of revenues for the nine months ended September 30, 2018 and 2017, respectively. The increase in SG&A expenses for the nine months ended September 30, 2018 was primarily attributable to the acquisitions of Eclipse, Thistle, BOLDER Graphics and Perennial, one time business reorganization costs of $1.3 million, additional professional fees and higher sales commission costs commensurate with the increase in revenues and gross margin and was partially offset by the benefits from the cost savings initiatives implemented in early 2018 and in 2017.

Restructuring Expenses

For the quarter ended September 30, 2017, DCM incurred restructuring expenses of $1.4 million primarily related to headcount reductions across the sales and customer service functions of the business.

For the nine months ended September 30, 2018, DCM incurred net restructuring expenses of $0.8 million compared to $5.0 million in the same period in 2017. DCM incurred $1.9 million of restructuring costs related to 1) headcount reductions in indirect labour as a result of the plant consolidations completed during the nine month period, in addition to reductions of certain individuals within the sales and administrative functions, and 2) costs incurred to facilitate the closure and consolidation of the Multiple Pakfold, BOLDER Graphics and Granby, Québec facilities into DCM’s Brampton, Ontario, Calgary, Alberta and Drummondville, Québec facilities, respectively. Total restructuring costs were offset by a recovery of $1.1 million related to the termination of DCM’s lease agreement for its Granby, Québec facility

For the nine months ended September 30, 2017, DCM incurred restructuring expenses of $5.0 million. $5.0 million of restructuring costs in the first nine months of 2017 were incurred related to headcount reductions in DCM’s indirect labour force across its operations, which were designed to streamline DCM’s order-to-production process and across the sales and customer service functions of the business. These restructuring costs were offset by a recovery of $0.3 million related to a sub-lease of a closed facility in Richmond Hill, Ontario and DCM also incurred a lease exit charge associated with the closure of its manufacturing and warehouse facility in Regina, Saskatchewan of $0.3 million.

Adjusted EBITDA

For the quarter ended September 30, 2018, Adjusted EBITDA was $5.2 million, or 7.0% of revenues, after adjusting EBITDA for $0.2 million of one-time business reorganization costs. Excluding the effects of adopting IFRS 9 and 15, Adjusted EBITDA was $4.8 million or 6.5% of revenues for the quarter ended September 30, 2018 compared with an Adjusted EBITDA of $3.3 million or 4.7% for the same period last year. Adjusted EBITDA for the three months ended September 30, 2018 increased $1.9 million or 59.1% from the same period in the prior year which was 4.7% of revenues in 2017. The increase in Adjusted EBITDA for the three months ended September 30, 2018 was primarily attributable to higher gross profit as a result of higher revenues contributed by DCM’s core business, BOLDER Graphics and Perennial acquisitions, favourable product mix and improved pricing discipline and costs savings from the restructuring and plant consolidations carried out in the second half of 2017 and early 2018.

For the nine months ended September 30, 2018, Adjusted EBITDA was $15.7 million, or 6.5% of revenues, after adjusting EBITDA for the $0.8 million in restructuring charges, $0.3 million of acquisition costs and $1.3 million of one-time business reorganization costs. Excluding the effects of adopting IFRS 9 and 15, Adjusted EBITDA was $14.7 million or 6.2% of revenues for the nine months ended September 30, 2018 compared with an Adjusted EBITDA of $10.5 million or 4.9% for the same period last year. The $5.2 million increase in Adjusted EBITDA for the nine months ended September 30, 2018 over the nine months of 2017 was attributable to higher gross profit as a result of revenues contributed by DCM’s core business, in addition to the Eclipse, Thistle, BOLDER Graphics and Perennial acquisitions, improved pricing initiatives implemented part-way through the prior year, favourable product mix, and cost savings from the restructuring efforts carried out in the second half of 2017 and early 2018.